​Ukrainian law enforcement agencies raided the offices of Motor Sich, the leading producer of aircraft and helicopter engines in the CIS, and discovered $500,000 in cash.

The Prosecutor General’s Office has opened several criminal cases and started an investigation into possible embezzlement of state defence orders and illegally inflating prices of services rendered over the past four years in fraud charges worth an estimated UAH350m ($13m).

The authorities also claim the company was using offshore shell entities without prior authorisation by the Antimonopoly Committee of Ukraine (ACU), which Motor Sich is obliged to declare in the case of servicing defence sector contracts.

“The Department of Investigation of Specially Important Economic Matters of the General Prosecutor’s Office of Ukraine with the operational support of the National Police Department of the National Economy Protection Department found a criminal scheme resulting in the loss of funds [to the state] by Motor Sich OJSC,” Larissa Saraga, press secretary of Ukrainian Prosecutor General Yuriy Lutsenko, reported on her Facebook page.

Images posted on social media page reportedly from the Motor Sich raid showed images of what appear to be rare coins and medals, as well as stacks of hundred dollar bills with a calendar next to them to timestamp the image.

 

Between 2013-2016 Motor Sich officials bought junk securities to the value of UAH350mn passing them through shell companies that were later converted to cash, reports Obozrevatel, a Ukrainian news site. The officials reportedly withdrew $500,000 in cash from these accounts, which was found in the offices along with valuable antiques.

“There are several criminal cases against Motor Sich. One of them is being investigated by the Security Service of Ukraine (SBU). It is related to the fact that most of the shares that were earlier sold to offshore companies were sold not in line with the legislation,” Lutsenko said at a press conference in Dnipro last week, reports Interfax.

Lutsenko said that the investigation is likely to last another month and stressed that no charges have been brought yet.

“Now top managers of Motor Sich enterprise are defenders in the case … No one announced suspects and guilty persons. We will now analyse the documents, who signed them and who permitted to sign them,” he said, reports Interfax.

Obozrevatel also reported in November 2016 that Motor Sich’s directors were cooperating with Russia’s Federal Security Service (FSB).

The major shareholder of Motor Sich, Vyacheslav Boguslayev, dismissed the accusations and said the company was ready to cooperate with state prosecutors and provide all information needed, reports Dragon Capital. He also warned the criminal probe may put at risk the company’s recently announced cooperation programme with a Chinese partner who planned to invest $100m in the company.

Dragon Capital down played the case in a note: “Some of the accusations seems very weak, as the $13m of alleged violations over four years looks like a statistical error vs. Motor Sich’s total revenues over the period of $3bn.”

The issue of the need to get anti-monopoly approval to use off shore accounts is also up for question and will not be clear until more details are available, says Dragon, which is maintaining a ‘buy” recommendation for the company’s stock. Motor Sich is due to release its financials for the first half of this year at the end of this month.